The value of sterling on international markets has already fallen dramatically, if the result were to be for the UK to leave, then it would be likely to fall further.
The comments, contained in the latest minutes of the Financial Policy Committee, a group within the central bank charged with financial stability, and chaired by Carney.
The committee noted that the profitability of the UK banks has been dented by persistently low interest rates, and Brexit could mean those banks being less able to obtain funding on the wholesale markets if they need it.
It was the onset of the banks’ not being willing to lend to each other that sparked the previous credit crunch.
Additionally, it may be that the weaker currency makes the UK banks a less attractive investment.
Many international investors have turned to UK assets as a ‘safe haven’ since the financial crisis, partly in response to the relative strength of sterling to the Euro and other currencies.
If those investors were to decide that the UK is relatively less safe, and sold off their UK assets, or didn’t put any more cash into UK assets, then the value of many UK investments, such as property, would fall, and leave bank balance sheets, which hold many loans against just such assets, in a relatively parlous state.
An inability to shore up their balance sheet could then lead to another credit crunch, in the view of the governor and his committee.
[Source:-Whatinvestment]
